[Federal Register Volume 63, Number 160 (Wednesday, August 19, 1998)]
[Notices]
[Pages 44456-44460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22293]


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FEDERAL COMMUNICATIONS COMMISSION

[Report No. AUC-98-21-A (Auction No. 21); DA 98-1616]


Location and Monitoring Service Spectrum Auction Scheduled For 
December 15, 1998; Comment Sought on Reserve Prices or Minimum Opening 
Bids and Other Auction Procedural Issues

AGENCY: Federal Communications Commission.

ACTION: Notice; seeking comment.

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SUMMARY: The Commission announces the auction of 528 multilateration 
Location and Monitoring Service licenses scheduled for December 15, 
1998, and seeks comment on a proposed formula for calculating minimum 
opening bids and other auction procedural issues.

DATES: Comments are due on or before September 2, 1998. Reply comments 
are due on or before September 9, 1998.

ADDRESSES: To file formally, parties must submit an original and four 
copies to the Office of the Secretary, Federal Communications 
Commission, Room 222, 1919 M Street N.W., Washington, D.C. 20554. In 
addition, parties must submit one copy to Amy Zoslov, Chief, Auctions 
and Industry Analysis Division, Wireless Telecommunications Bureau, 
Federal Communications Commission, Room 5202, 2025 M Street N.W., 
Washington, D.C. 20554. Comments and reply comments will be available 
for public inspection during regular business hours in the FCC Public 
Reference Room, Room 239, 1919 M Street N.W., Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: Kathy Garland, Bob Reagle or Kenneth 
Burnley, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, at (202) 418-0660.

SUPPLEMENTARY INFORMATION: This public notice was released on August 
13, 1998 and is available in its entirety for inspection and copying 
during normal business hours in the FCC Reference Center (Room 239), 
1919 M Street, N.W., Washington, D.C., and also may be purchased from 
the Commission's copy contractor, International Transcription Services, 
(202) 857-3800, fax (202) 857-3805, 1231 20th Street, N.W., Washington, 
D.C. 20036.

Synopsis of the Public Notice

    1. By this Public Notice, the Wireless Telecommunications Bureau 
(``Bureau'') announces the auction of 528

[[Page 44457]]

multilateration Location and Monitoring Service (``LMS'') licenses set 
to begin on December 15, 1998. Three blocks of spectrum are allocated 
for multilateration LMS systems:

(1) Block A  904.000-909.750 MHz and 927.750-928.000 MHz
(2) Block B  919.750-921.750 MHz and 927.500-927.750 MHz
(3) Block C  921.750-927.250 MHz and 927.250-927.500 MHz

    2. One license will be awarded for each of these spectrum blocks in 
each of 176 Economic Areas (EAs) designated for LMS. The 176 EAs 
designated for the LMS auction comprise the following areas: (1) the 
continental United States, Hawaii and Alaska (Alaska to be licensed in 
a single area); (2) Guam and the Northern Mariana Islands (to be 
licensed in a single area); (3) Puerto Rico and the U.S. Virgin Islands 
(to be licensed in a single area); (4) America Samoa; and (5) the Gulf 
of Mexico. Thus, there are a total of 528 multilateration LMS licenses 
to be auctioned.
    3. Future public notices will include further details regarding 
application filing and payment deadlines, a seminar, and other 
pertinent information. In this Public Notice, the Commission seeks 
comment on procedural issues relating to the LMS auction.

I. Reserve Price or Minimum Opening Bid

    4. The Balanced Budget Act of 1997 calls upon the Commission to 
prescribe methods by which a reasonable reserve price will be required 
or a minimum opening bid established when FCC licenses are subject to 
auction (i.e., because they are mutually exclusive), unless the 
Commission determines that a reserve price or minimum bid is not in the 
public interest. Consistent with this mandate, the Commission has 
directed the Bureau to seek comment on the use of a minimum opening bid 
and/or reserve price prior to the start of each auction. The Bureau was 
directed to seek comment on the methodology to be employed in 
establishing each of these mechanisms. Among other factors the Bureau 
should consider is the amount of spectrum being auctioned, levels of 
incumbency, the availability of technology to provide service, the size 
of the geographic service areas, issues of interference with other 
spectrum bands, and any other relevant factors that reasonably could 
have an impact on valuation of the spectrum being auctioned. The 
Commission concluded that the Bureau should have the discretion to 
employ either or both of these mechanisms for future auctions.
    5. Normally, a reserve price is an absolute minimum price below 
which an item will not be sold in a given auction. Reserve prices can 
be either published or unpublished. A minimum opening bid, on the other 
hand, is the minimum bid price set at the beginning of the auction 
below which no bids are accepted. It is generally used to accelerate 
the competitive bidding process. Also, in a minimum opening bid 
scenario, the auctioneer generally has the discretion to lower the 
amount later in the auction.
    6. In anticipation of this auction and in light of the Balanced 
Budget Act, the Bureau proposes to establish minimum opening bids for 
the LMS auction, and retain discretion to lower the minimum opening 
bids. The Bureau believes a minimum opening bid, which has been 
utilized in other auctions, is an effective bidding tool. A minimum 
opening bid, rather than a reserve price, will help to regulate the 
pace of the auction and provides flexibility.
    7. Specifically, the Commission proposes the following formulas for 
calculating minimum opening bids on a license-by-license basis in 
Auction No. 21:

(1) Block A  $0.004*MHz*Pops (rounded up to the next dollar and no less 
than $2,850 per license)
(2) Block B  $0.004*MHz*Pops (rounded up to the next dollar and no less 
than $2,500 per license)
(3) Block C  $0.004*MHz*Pops (rounded up to the next dollar and no less 
than $2,800 per license)

    Comment is sought on this proposal. If commenters believe that the 
formula proposed above for minimum opening bids will result in 
substantial numbers of unsold licenses, or is not a reasonable amount, 
or should instead operate as a reserve price, they should explain why 
this is so, and comment on the desirability of an alternative approach. 
Commenters are advised to support their claims with valuation analyses 
and suggested reserve prices or minimum opening bid levels or formulas. 
In establishing the formula for minimum opening bids, the Commission 
particularly seeks comment on such factors as, among other things, the 
amount of spectrum being auctioned, levels of incumbency, the 
availability of technology to provide service, the size of the 
geographic service areas, issues of interference with other spectrum 
bands and any other relevant factors that could reasonably have an 
impact on valuation of the LMS spectrum. Alternatively, comment is 
sought on whether, consistent with the Balanced Budget Act, the public 
interest would be served by having no minimum opening bid or reserve 
price.

II. Other Auction Procedural Issues

    8. The Balanced Budget Act of 1997 requires the Commission to 
``ensure that, in the scheduling of any competitive bidding under this 
subsection, an adequate period is allowed * * * before issuance of 
bidding rules, to permit notice and comment on proposed auction 
procedures * * *'' Consistent with the provisions of the Balanced 
Budget Act and to ensure that potential bidders have adequate time to 
familiarize themselves with the specific provisions that will govern 
the day-to-day conduct of an auction, the Commission directed the 
Bureau, under its existing delegated authority, to seek comment on a 
variety of auction-specific issues prior to the start of each auction. 
The Commission therefore seeks comment on the following issues.
a. Auction Sequence and License Groupings
    9. Because it is most administratively appropriate, and allows 
bidders to take advantage of any synergies that exist among licenses, 
the Commission proposes to award the 528 multilateration LMS licenses 
in a single, simultaneous multiple-round auction. The Commission seeks 
comment on this proposal.
b. Structure of Bidding Rounds, Activity Requirements, and Criteria for 
Determining Reductions in Eligibility
    10. The Commission proposes to divide the auction into three 
stages: Stage One, Stage Two and Stage Three. The auction will start in 
Stage One. The Commission proposes that the auction will generally 
advance to the next stage (i.e., from Stage One to Stage Two, and from 
Stage Two to Stage Three) when the auction activity level, as measured 
by the percentage of bidding units receiving new high bids, is below 
ten percent for three consecutive rounds of bidding in each Stage. 
However, the Commission further proposes that the Bureau retain the 
discretion to change stages unilaterally by announcement during the 
auction. In exercising this discretion, the Bureau will consider a 
variety of measures of bidder activity including, but not limited to, 
the auction activity level, the percentages of licenses (as measured in 
bidding units) on which there are new bids, the number of new bids, and 
the percentage increase in revenue. The Commission seeks comment on 
these proposals.
    11. In order to ensure that the auction closes within a reasonable 
period of

[[Page 44458]]

time, an activity rule requires bidders to bid actively on a percentage 
of their maximum bidding eligibility during each round of the auction 
rather than waiting until the end to participate. A bidder that does 
not satisfy the activity rule will either lose bidding eligibility in 
the next round or use an activity rule waiver.
    12. For the LMS auction, the Commission proposes that, in each 
round of Stage One of the auction, a bidder desiring to maintain its 
current eligibility is required to be active on licenses encompassing 
at least 60 percent of its current bidding eligibility. Failure to 
maintain the requisite activity level will result in a reduction in the 
bidder's bidding eligibility in the next round of bidding (unless an 
activity rule waiver is used). During Stage One, reduced eligibility 
for the next round will be calculated by multiplying the current round 
activity by five-thirds (5/3). In each round of the second stage of the 
auction, a bidder desiring to maintain its current eligibility is 
required to be active on at least 80 percent of its current bidding 
eligibility. During Stage Two, reduced eligibility for the next round 
will be calculated by multiplying the current round activity by five-
fourths (5/4). In each round of Stage Three, a bidder desiring to 
maintain its current eligibility is required to be active on 98 percent 
of its current bidding eligibility. In this final stage, reduced 
eligibility for the next round will be calculated by multiplying the 
current round activity by fifty forty-ninths (50/49). The Commission 
seeks comment on these proposals.
c. Minimum Accepted Bids
    13. Once there is a standing high bid on a license, a bid increment 
will be applied to that license to establish a minimum acceptable bid 
for the following round. For the LMS auction, the Commission proposes, 
as described immediately below, to use an exponential smoothing 
methodology to calculate minimum bid increments. The Bureau retains the 
discretion to change the minimum bid increment if it determines that 
circumstances so dictate. The exponential smoothing methodology has 
been used in previous auctions, including the LMDS auction, and will be 
used in the upcoming 220 MHz auction. The Commission seeks comment on 
this proposal.
Exponential Smoothing
    14. The exponential smoothing formula calculates the bid increment 
based on a weighted average of the activity received on each license in 
the current and all previous rounds. This methodology will tailor the 
bid increment for each license based on activity, rather than setting a 
global increment for all licenses. For every license that receives a 
bid, the bid increment for the next round for that license will be 
established as a percentage increment that is determined using the 
exponential smoothing formula.
    15. Using exponential smoothing, the calculation of the percentage 
bid increment for each license will be based on an activity index, 
which is calculated as the weighted average of the current activity and 
the activity index from the previous round. The activity index at the 
start of the auction (round 0) will be set at 0. The current activity 
index is equal to a weighting factor times the number of new bids 
received on the license in the current bidding period plus one minus 
the weighting factor times the activity index from the previous round. 
The activity index is then used to calculate a percentage increment by 
multiplying a minimum percentage increment by one plus the activity 
index with that result being subject to a maximum percentage 
increment.The Commission will initially set the weighting factor at 
0.5, the minimum percentage increment at 0.1, and the maximum 
percentage increment at 0.2.

Equations

Ai=(C * Bi)+((1-C) * Ai-1)
Ii=smaller of ((1+Ai) * N) and M

Where,

Ai=activity index for the current round (round i)
C=activity weight factor
Bi=number of bids in the current round (round i)
Ai-1=activity index from previous round (round 
i-1), A0 is 0
Ii=percentage bid increment for the current round (round i)
N=minimum percentage increment
M=maximum percentage increment

    Under the exponential smoothing methodology, once a bid has been 
received on a license, the minimum acceptable bid for that license in 
the following round will be the new high bid plus the dollar amount 
associated with the percentage increment (variable Ii from 
above times the high bid). This result will be rounded to the nearest 
thousand if it is over 10,000 or to the nearest hundred if it is under 
10,000.

Examples

License 1
C=0.5, N=0.1, M=0.2

Round 1 (2 new bids, high bid=$1,000,000)

1. Calculation of percentage increment using exponential smoothing:
A1=(0.5 * 2)+(0.5 * 0)=1
The smaller of I1=(1+1) * 0.1=0.2 or 0.2 (the maximum 
percentage increment)
2. Minimum bid increment using the percentage increment (I1 
from above)0.2 * $1,000,000=$200,000]
3. Minimum acceptable bid for round 2=1,200,000

Round 2 (3 new bids, high bid=2,000,000)

1. Calculation of percentage increment using exponential smoothing:
A2=(0.5 * 3)+(0.5 * 0)=1.5
The smaller of I2=(1+1.5) * 0.1=0.25 or 0.2 (the maximum 
percentage increment)
2. Minimum bid increment using the percentage increment is 
(I2 from above)0.2 * $2,000,000=$400,000
3. Minimum acceptable bid for round 3=2,400,000

Round 3 (1 new bid, high bid=2,400,000)

1. Calculation of percentage increment using exponential smoothing:

A3=(0.5 * 1)+(0.5 * 0.5)=0.75
The smaller of I3=(1+.75) * 0.1=0.175 or 0.2 (the maximum 
percentage increment)
2. Minimum bid increment using the percentage increment (I3 
from above)0.175 * $2,400,000=$420,000
3. Minimum acceptable bid for round 4=2,820,000
d. Initial Maximum Eligibility for Each Bidder
    16. The Bureau has delegated authority and discretion to determine 
an appropriate upfront payment for each license being auctioned, taking 
into account such factors as the population in each geographic license 
area, and the value of similar spectrum. With these guidelines in mind, 
the Commission proposes for the LMS auction the following upfront 
payments:

(1) Block A  $0.002*MHz*Pops (rounded up to the next dollar and no less 
than $2,850 per license)
(2) Block B  $0.002*MHz*Pops (rounded up to the next dollar and no less 
than $2,500 per license)
(3) Block C  $0.002*MHz*Pops (rounded up to the next dollar and no less 
than $2,800 per license)

    The Commission seeks comment on this proposal. For the LMS auction, 
the Commission further proposes that the amount of the upfront payment 
submitted by a bidder will determine

[[Page 44459]]

the initial maximum eligibility (as measured in bidding units) for each 
bidder. Upfront payments will not be attributed to specific licenses, 
but instead will be translated into bidding units to define a bidder's 
initial maximum eligibility, which cannot be increased during the 
auction. Thus, in calculating the upfront payment amount, an applicant 
must determine the maximum number of bidding units it may wish to bid 
on (or hold high bids on) in any single round, and submit an upfront 
payment covering that number of bidding units. The Commission seeks 
comment on this proposal.
e. Activity Rule Waivers and Reducing Eligibility
    17. Use of an activity rule waiver preserves the bidder's current 
bidding eligibility despite the bidder's activity in the current round 
being below the required minimum level. An activity rule waiver applies 
to an entire round of bidding and not to a particular license.Activity 
waivers are principally a mechanism for auction participants to avoid 
the loss of auction eligibility in the event that exigent circumstances 
prevent them from placing a bid in a particular round.
    18. The FCC auction system assumes that bidders with insufficient 
activity would prefer to use an activity rule waiver (if available) 
rather than lose bidding eligibility. Therefore, the system will 
automatically apply a waiver (known as an ``automatic waiver'') at the 
end of any bidding period where a bidder's activity level is below the 
minimum required unless: (1) there are no activity rule waivers 
available; or (2) the bidder overrides the automatic application of a 
waiver by reducing eligibility thereby meeting the minimum 
requirements.
    19. A bidder with insufficient activity that wants to reduce its 
bidding eligibility rather than use an activity rule waiver must 
affirmatively override the automatic waiver mechanism during the 
bidding period by using the reduce eligibility function in the 
software. In this case, the bidder's eligibility is permanently reduced 
to bring the bidder into compliance with the activity rules as 
described above. Once eligibility has been reduced, a bidder will not 
be permitted to regain its lost bidding eligibility.
    20. A bidder may proactively use an activity rule waiver as a means 
to keep the auction open without placing a bid. If a bidder submits a 
proactive waiver (using the proactive waiver function in the bidding 
software) during a bidding period in which no bids are submitted, the 
auction will remain open and the bidder's eligibility will be 
preserved. An automatic waiver invoked in a round in which there are no 
new valid bids will not keep the auction open.
    21. The Commission proposes that each bidder in the LMS auction be 
provided with five activity rule waivers that may be used in any round 
during the course of the auction as set forth above. The Commission 
seeks comment on this proposal.
f. Information Regarding Bid Withdrawal and Bid Removal
    22. For the LMS auction, the Commission proposes the following bid 
removal and bid withdrawal procedures. Before the close of a bidding 
period, a bidder has the option of removing any bids placed in that 
round. By using the remove bid function in the software, a bidder may 
effectively ``unsubmit'' any bid placed within that round. A bidder 
removing a bid placed in the same round is not subject to withdrawal 
payments.
    23. Once a round closes, a bidder may no longer remove a bid. 
However, in the next round, a bidder may withdraw standing high bids 
from previous rounds using the withdraw bid function. A high bidder 
that withdraws its standing high bid from a previous round is subject 
to the bid withdrawal payment provisions. The Commission seeks comment 
on these bid removal and bid withdrawal procedures.
    24. In the Part 1 Third Report and Order, the Commission recently 
explained that allowing bid withdrawals facilitates efficient 
aggregation of licenses and the pursuit of efficient backup strategies 
as information becomes available during the course of an auction. The 
Commission noted, however, that in some instances bidders may seek to 
withdraw bids for improper reasons, including to delay the close of the 
auction for strategic purposes. The Bureau, therefore, has discretion, 
in managing the auction, to limit the number of withdrawals to prevent 
strategic delay of the close of the auction or other abuses. The 
Commission stated that the Bureau should assertively exercise its 
discretion, consider limiting the number of rounds in which bidders may 
withdraw bids, and prevent bidders from bidding on a particular market 
if the Bureau finds that a bidder is abusing the Commission's bid 
withdrawal procedures.
    25. Applying this reasoning, the Commission proposes to limit each 
bidder in the LMS auction to withdrawals in no more than two rounds 
during the course of the auction. To permit a bidder to withdraw bids 
in more than two rounds would likely encourage insincere bidding or the 
use of withdrawals for anti-competitive strategic purposes. The two 
rounds in which withdrawals are utilized will be at the bidder's 
discretion; withdrawals otherwise must be in accordance with the 
Commission's rules. There is no limit on the number of standing high 
bids that may be withdrawn in either of the rounds in which withdrawals 
are utilized. Withdrawals will remain subject to the bid withdrawal 
payment provisions specified in the Commission's rules. The Commission 
seeks comment on this proposal.
g. Stopping Rule
    26. For the LMS auction, the Bureau proposes to employ a 
simultaneous stopping approach. The Bureau has discretion ``to 
establish stopping rules before or during multiple round auctions in 
order to terminate the auction within a reasonable time.'' The 
Commission therefore has the discretion to adopt for the LMS auction an 
alternative stopping rule to the simultaneous stopping rule if the 
Commission deems it appropriate. Thus, unless circumstances dictate 
otherwise, bidding would remain open on all licenses until bidding 
stops on every license. The auction would close for all licenses when 
one round passes during which no bidder submits a new acceptable bid on 
any license, applies a proactive waiver, or withdraws a previous high 
bid.
    27. The Commission proposes that the Bureau retain the discretion 
to keep an auction open even if no new acceptable bids or proactive 
waivers are submitted and no previous high bids are withdrawn. In this 
event, the effect will be the same as if a bidder had submitted a 
proactive waiver. The activity rule, therefore, will apply as usual and 
a bidder with insufficient activity will either lose bidding 
eligibility or use a remaining activity rule waiver.
    28. Finally, the Commission proposes that the Bureau, reserve the 
right to declare that the auction will end after a specified number of 
additional rounds (``special stopping rule''). If the Bureau invokes 
this special stopping rule, it will accept bids in the final round(s) 
only for licenses on which the high bid increased in at least one of 
the preceding specified number of rounds. The Bureau proposes to 
exercise this option only in circumstances such as where the auction is 
proceeding very slowly, where there is minimal overall bidding 
activity, or where it appears likely that the auction will not close 
within a reasonable period of time. Before exercising this option, the

[[Page 44460]]

Bureau is likely to attempt to increase the pace of the auction by, for 
example, moving the auction into the next stage (where bidders would be 
required to maintain a higher level of bidding activity), increasing 
the number of bidding rounds per day, and/or increasing the amount of 
the minimum bid increments for the limited number of licenses where 
there is still a high level of bidding activity. The Commission seeks 
comment on these proposals.
h. Information Relating to Auction Delay, Suspension or Cancellation
    29. For the LMS auction, the Commission proposes that, by public 
notice or by announcement during the auction, the Bureau may delay, 
suspend or cancel the auction in the event of natural disaster, 
technical obstacle, evidence of an auction security breach, unlawful 
bidding activity, administrative or weather necessity, or for any other 
reason that affects the fair and competitive conduct of competitive 
bidding. In such cases, the Bureau, in its sole discretion, may elect 
to: resume the auction starting from the beginning of the current 
round; resume the auction starting from some previous round; or cancel 
the auction in its entirety. Network interruption may cause the Bureau 
to delay or suspend the auction. The Commission emphasizes that 
exercise of this authority is solely within the discretion of the 
Bureau, and its use is not intended to be a substitute for situations 
in which bidders may wish to apply their activity rule waivers. The 
Commission seeks comment on this proposal.
Mark Bollinger,
Deputy Division Chief, Auctions and Industry Analysis Division, 
Wireless Telecommunications Bureau.
[FR Doc. 98-22293 Filed 8-18-98; 8:45 am]
BILLING CODE 6712-01-P